A probate attorney would have to review the will to determine exactly how the house was awarded to your grandfather. In addition, the attorney would need to review the probate filings to see if your grandfather has a claim against the niece for failing to properly distribute the estate.
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Gnerally, assets do not flow to siblings. They flow to descendants. If your grandfather's brother had children, your grandfather would not be entitled to an intestate share. Please consult a California attorney and show him or her "the family tree" so that you can get a full answer.
Yes and now that your grandfather knows and must go to court to see if there is anything he can do. If the niece owns anything at all, it should be recoverable against her for fraud. Don't wait or it will be too late.
If your appearance in court was six years ago, it is probably too late. Please keep in mind the niece did not "appoint herself" but rather requested that the court appoint her. However, your grandfather should have received notice six years ago that all of this was happening. If your court appearance was recent, then you should seek a probate attorney to at least review as all other posters have stated.